Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a new machine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the old machine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29
Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of
a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
| Differential Analysis |
| Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) |
| April 29 |
|
Contine with Old Machine (Alternative 1) |
Replace Old Machine (Alternative 2) |
Differential Effects (Alternative 2) |
|
| Revenues: |
_________________ |
_________________ |
__________________ |
| Proceeds from sale of old machine |
$ |
$ |
$ |
| Costs: |
____________ |
__________________ |
____________________ |
| Purchase prie |
|
|
|
|
variable production costs (8 years) |
|
|
|
|
|
$ |
$ |
$ |
Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. ____
b. What is the sunk cost in this situation?
The sunk cost is $_____
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
